TOYOTA'S TED OGAWA: Continuing the legacy

DALLAS — Toyota Motor North America's new CEO, Ted Ogawa, spent the past several years under the direct tutelage of the man he succeeded: longtime CEO Jim Lentz, who retired April 1. Ogawa, who cut his teeth in the U.S. as a purchasing coordinator at the joint Toyota-General Motors NUMMI assembly plant in Fremont, Calif., sees calm, confident leadership as the key to getting Toyota's North American operations through the COVID-19 pandemic, a belief he shared with Lentz.

Ogawa, 60, had never granted an interview to a news organization before, but he spoke for an hour with Publisher Jason Stein and Staff Reporter Larry P. Vellequette on March 9 at his office in Plano, Texas, just weeks before the Japanese automaker suspended production. Here are edited excerpts.

Q: Tell us your feelings about being in the CEO position and your vision for the role.

A: Firstly, I want to continue the legacy that Jim Lentz started, with bringing our teams all together as Toyota. That's the biggest thing. There are no silos, no barriers — just together, Toyota. That is the story of this campus. The background on that goes back to Feb. 24, 2010. (The day Toyota CEO Akio Toyoda apologized at a U.S. congressional hearing for cases of unintended acceleration.) That is a day we should never forget.

One of the issues on that day, or in the [Toyota sudden-acceleration] crisis, is internal: The communication was divided by silo, and each function had to communicate with its Japan-side counterpart in the same silo between the same function. There was no internal communication within the U.S., which was one reason for our lack of communication and then slow decision-making. That created a huge crisis.

The No. 2 issue was external. We were doing all the things our customers wanted, and we were growing and growing and growing. However, we were still viewed externally as visitors — not like a neighbor. That was the feeling. So what actions should we take? That was the huge homework assignment for the top management team. Jim Lentz created a small team, and we all thought about this huge homework assignment. One insight is that we were too spread out. We needed to be all together, as one team, in North America.

We have research and development in Michigan, and we have 10 plants around the United States that are already located in different states. However, the organization — like the sales, the headquarters, manufacturing functions — we came together, along with finance, at this campus. This is the starting point. Gradually, I feel that team members' mentality is now changing in the way we wanted. So my vision is the continuous development of this concept of One Toyota.

You started your career in the U.S. at the NUMMI plant. What did you do there?

At that time, I was maybe 30-something. I was young, and at that time, I was in the purchasing area.

What do you remember from those days?

Everything was new to me because it was my first time to be in the United States. Everything was very strenuous for me, including some communication with our team members. And also, we had a partner at that time; we had a partnership [in that plant] with General Motors. So we were always talking with the coordinator. My position was just the [purchasing] coordinator, and then General Motors also had a coordinator, and the local members also had some job titles that were unique under such a structure.

Did you learn lessons from that assignment?

Oh, yes. The GM side, they learned the [Toyota Production System] in detail. But funny story: I learned what TPS was from the General Motors side. They had a very well-organized shell of what TPS is, so sometimes, I would go in that room and look at that display and learn.

What are some other key points in your personal history that guided you to where you are today?

I joined Toyota in 1984, and for the first 10 years, I was in a purchasing job, including NUMMI. And then returned back to Japan, where I was in the overseas planning division, which is [serving] the marketing side or sales side. It was the first time for me to work in the sales function. There, we worked on product planning, like pricing or supply/demand; such a very fundamental function, my experience there. After that, I joined Toyota Motor Sales in Torrance, Calif., as a coordinator and then product planning mainly, followed by the Lexus Division. This was when the unintended acceleration issue happened.

Are there vehicles in the Toyota or Lexus lineup that have your fingerprints on them?

Yes. It wasn't 100 percent, but in the case of Scion — Scion is gone, of course — but it was sort of a collaboration of Japan product and the features [of those products] not fitting into the U.S. market. My role was sort of a bridge between the Japan side and the Scion division. It's a fond memory for me, even if Scion's gone now. No one could imagine such a boxy car like the xB would be such a home run in this country.

Did you have a role in developing Scion brand vehicles?

Not developing, but planning. That one price, no discount, no negotiation strategy.

Why do you think Scion didn't work?

From my perspective, No. 1 was product. At the time of Scion, Japan's market was still very energetic, so that's why we could cherry-pick unique products for the U.S. market, like the xB and the xA and the tC, so that's why we picked it up. But the Japan market declined, and then, productwise, it became only sedans or similar types of minivans. I'm sorry to say, but Japan was just sort of boring, so there was no product to be picked up. No. 2, the issue of local production [in the U.S.] was increasing, so the resources were focusing on local production.

Does Toyota need to expand its SUV and crossover options?

Yes, but we need to consider CAFE and [greenhouse gas] compliance. So in this sense, our product range is quite important.

One of our cool, unique products might be our hybrid. Hybrids are not new to the customer, or not viewed as high-tech by the customer. However, what hybrids bring to a product is a balance between fuel economy and power. In the case of the Prius or Corolla, for example, we have these products very much focused on mpg. But in the case of the RAV4, the [take rate] of the hybrid is quite high because the acceleration is way faster than a traditional [internal combustion engine]. That's the second feature of the hybrid. It's a future product, but we are now considering hybrids on our pickups and trucks, which will mean focusing the hybrid on added torque and power. So we have the mpg type of hybrid, the acceleration type of hybrid and the torque and power type of hybrid. So it becomes a question of which type of hybrid in which body type the market needs.

Where do fuel cells fit in?

We have the hybrids, and the new Mirai [fuel cell vehicle] is coming soon. But the issue is the infrastructure, so it's a chicken-and-egg situation, so we stick to the expansion of the fuel cell, including the expansion of the Class 8 truck, which makes a huge contribution to cleaning up the air in California.

Toyota has had a very conservative product cadence; the Tundra is a prime example, having not been fully redesigned since 2007. Are there plans to shorten that lengthy cadence?

In the case of the Toyota lineup, right now, it's a very good cadence, with one or two new [or refreshed] models per year, and will continue. So dealers are happy, and we are confident, even if the Tundra is too far in its life cycle. We have a new one coming soon, but they are selling currently.

I have no worries about the Toyota lineup, but in the case of Lexus, the cadence is an issue. So for this year, the LC convertible is new. Profitwise, it may be OK, but in this sense, the Lexus dealer body wants to see more product sooner.

How will you change that within Lexus?

We need to change the cadence and the product and the powertrain. Cadence is a planning concept, so that's a No. 1 priority. And then product, next to the powertrain, right now is a second order.

What do you think ails Lexus? Where is the weak point? Is it something that can be fixed with product?

Yes, product and the cadence, and No. 2 is the cost competitiveness. Aggressive incentives from German brands in particular are impacting the market. So we need to change the luxury market, which has been tough for us. Customers rely on the quality of our products, but dealers have issues with cadence. I can improve product and cadence because those are in my hands. But I cannot control the market, so that's very difficult, and I don't have the right answer yet for that.

Do you continue to see a place for the Land Cruiser in the U.S., or is it bumping into Lexus?

The Toyota dealers strongly want the nameplate of Land Cruiser, but we have not decided yet. We have some alternatives on how to retain the Land Cruiser nameplate.

What kind of options does the new F1 truck platform open for you to expand your offerings?

We have new versions of the "four brothers" coming soon: Tacoma and 4Runner and Tundra and Sequoia. This is being led by Mike Sweers in Michigan as our chief truck engineer. So our team is deciding how best to develop the "four brothers" in a healthy and profitable way.

Could there eventually be more brothers in the family?

I think four is enough.

This question changes by the day because of the developing coronavirus situation, but what is your 2020 outlook?

It's very difficult because the situation is changing rapidly. But our No. 1 priority is the health of our team members — we need to keep them healthy. But No. 2 is our supply chain. We are looking closely at our supply chain, and fortunately, there are some parts coming from China or South Korea, wiring harnesses, electronics, semiconductors, etc. We need to keep a close watch on that.

Where are you on the subject of trade? Will North America see more investments from Toyota?

Our commitment to keep investing in the United States has not changed. This is not only monetary investments, but hiring people; job opportunities. We are very happy to make that contribution to this country, and I'm happy to be building a better relationship with each region and Toyota.

On trade, we need to think about trade and imbalance; so in this sense, when possible, we should promote local production more.

How does promoting local production affect Toyota's relationship with its supply base in the U.S.?

Local product means local content increases. We already have local supply bases in the U.S., but we need to expand that supply base in America. I can talk about USMCA in that we need to expand our supplier bases in the U.S., Canada and Mexico.

How do you see the Canadian market, and what's the priority there?

That Canadian product is so good from our Ingersoll [, Ontario,] plant. We respect the Canadian market, of course. But if we put too much focus on the American market, the products we produce get too big for [Canada]. So we need to listen to what Canadian customers are saying. I will become a member of the board of Toyota Canada, as a replacement for Jim Lentz, in April, so I need to talk with the management there, talk to dealers there, to better learn all the differences between the U.S. and Canadian markets.

How do you feel about market share or chasing market share? What might Toyota be willing to sacrifice to gain share?

Market share is out. The question is, how does the customer love our product? And from that question, the result is market share. Right now, 14 percent is our guideline. Actually, anything below 14 percent, and we may have huge pressure from Japan. Some months, we are in excess of 14 percent, but not too many. Another issue is our fleet sales — we keep them at about 10 percent of sales. It's another self-imposed guideline so we don't chase volume itself. Fleet is like a drug, and we need to be careful with it.

Toyota has been very disciplined about using fleet sales to boost overall volume. But is there pressure from Japan to boost sales?

Realistically, yes, because the North American market is a large portion of the [Toyota Motor Corp.] portfolio right now. China is now becoming very, very unclear.

How far back does your relationship with Akio Toyoda go? How well do you know him? How much do you keep in touch with him?

When I was at NUMMI, he was the vice president at that time. So it was the first time I was able to work with him, so maybe 20-plus years ago. And after that, when I was in China, I frequently bumped into him because he used to be the head of [Toyota China]. And at that time, he had already become CEO, but he's very interested in hearing what's happening in China. So, back and forth, I do and will continue to have close communications with him and his team.

What's the best training for the North America CEO job?

No. 1 is my English lessons. But I need to learn a lot from our American staff. And then, maybe we need to start with a team member tour, internally, and then meet our dealers. I've already met with some dealers, suppliers and investors. The goal in each case is to get to know each other and talk to each other. The priority is to create such opportunities for communication.

What's the biggest thing you need to understand about the North American market to succeed? What area do you want to study?

Well, it's not in this office. Or on this campus. I want to understand and be on the front line, regardless if it's dealers or manufacturing or the customers. I 100 percent respect what happens on the front lines, not in the office.

Let's talk about autonomous driving. Over the past five or six months, we've heard executives from many automakers retreating a bit on whether Level 5 autonomy is attainable. Investment to achieve Level 4 is super expensive. What are your views?

Yes, you're right; Level 4 or Level 5, they're very challenging. However, I think it's not just technology competition. The main goal through autonomous driving is mobility for all, where everyone can have the opportunity to move from point A to point B pretty easy. And then No. 2 is eliminating traffic accidents or eliminate the possibility of traffic accidents. So in this sense, we need to collaborate with other companies ... to investigate Level 4 and Level 5.

Does Toyota have automaker partners with whom it's easier to collaborate?

In the case of Japan, we have relationships with Mazda, Subaru, Honda. And then General Motors and BMW.

A typical example is our joint venture with Mazda in Huntsville, Ala. It used to be that on the production side, our production people had too much confidence in the Toyota Production System; they thought it was perfect. But we have learned a lot from the Mazda side, about investments and production [methods]. So we should be humble and learn from that.

Do you have a sense of the age demographics of Toyota and Lexus and whether the brands' success is generational?

Yes, our [average] customer is becoming older, so we need to rejuvenate, to make products that are more appealing to the younger generation. That is something that I will have to think about.

How much does affordability play into that if you're planning to attract a younger audience?

Of course, attractive product with an affordable price, so in the background, costs must be massively competitive. So we need to think about that, both with our suppliers and with ourselves.

Dealers say affordability is an issue right now, with record-high transaction levels and loan rates and debt rates increasing rapidly. Is affordability something you want to focus on?

Yes. Fundamentally, as I said, we need to focus more on the cost side. So if we do MSRP, but if we do huge incentives, then it has no meaning. So less incentives but competitive at MSRP, with some profit, is a healthy situation. In this sense, cost competitiveness is very fundamental here and across Toyota.

Toyota has largely been able to avoid the incentive wars over the years because of its relatively loyal customer base.

Yes, but still we are spending money because the market is alive. But we are working now on how to squeeze such incentives because incentives are like a drug. If we do an incentive, then more volume is expected. However, then residual value is down, and it's not good for the customer ultimately. So from the company and the customer side, fewer incentives are healthier.

What do you see as Toyota Financial Services' role going forward? Do you see it expanding?

Toyota Financial is a very important part of One Toyota. And currently, the head of TFS is Mark Templin, who is one of my best friends. He and his team work in very close collaboration with our sales function, including with the dealers. But we need to collaborate more with TFS.

Tell us about your family. Do you have children?

A daughter and a son. In fact, my daughter just got married. Both are living in Japan. My son is in college in Tokyo. My wife is in Japan but back and forth here five or six times a year.

For the longest time, most of the Asian automakers had Americans at the helm of their operations here. Now, mostly nationals, whether Korean or Japanese, are coming in. Do you have thoughts on that?

I don't know the other company histories, but in the case of Toyota, the textbook answer is that nationality doesn't matter. But this isn't a textbook. In reality, an American CEO and then a non-American CEO has some difference to me. Very frankly, my first question to Akio indicated that. I said, "I am not American. Because of that, there will be some difficulties expected. What is your advice?" His answer was: "You are you. I am not talking about nationality. You should do your best. No. 2, Jim Lentz and you have a great team in North America. You have a great day." That's it.

Of course, you're talking about nationalities, and I recognize there may be some difficulties, but let's work on them as a team. The global CEO is Japanese, not American, so my role is to share what he feels and what he thinks with our team.